Oil prices remained largely unchanged in early Asian trading on Monday as the market awaited the upcoming OPEC+ meeting scheduled for June 2. Producers are expected to discuss whether to maintain voluntary output cuts for the remainder of the year.
The Brent crude July contract inched up by 11 cents to $82.23 a barrel by 0036 GMT, while the more-active August contract rose 13 cents to $81.97. US West Texas Intermediate (WTI) crude futures also saw a slight increase, rising 13 cents to $77.85.
Public holidays in the US and UK on Monday are anticipated to keep trading volumes relatively low. The OPEC+ meeting, originally scheduled for June 1, was postponed by a day and will now be held online on June 2. During this meeting, producers will discuss extending the current voluntary output cuts of 2.2 million barrels per day (bpd) into the second half of the year. Sources within OPEC+ indicate that an extension is likely.
These voluntary cuts, combined with an additional 3.66 million bpd of production cuts valid through the end of the year, amount to nearly 6% of global oil demand. OPEC forecasts another year of robust oil demand growth at 2.25 million bpd, while the International Energy Agency (IEA) predicts a slower growth rate of 1.2 million bpd.
Analysts from ANZ noted that they will be closely monitoring gasoline usage as the Northern Hemisphere enters summer, a peak season for driving holidays. Despite expectations for a post-COVID high in US holiday trips, improved fuel efficiency and the increased use of electric vehicles (EVs) could keep oil demand subdued. However, this could be offset by a rise in air travel.
Additionally, market participants will be watching the U.S. personal consumption expenditures (PCE) index, set to be released on May 31, for further indications regarding interest rate policy. The PCE index is reportedly the US Federal Reserve’s preferred measure of inflation.
Brent crude ended last week about 2% lower, while WTI saw nearly a 3% decline after minutes from the Federal Reserve meeting revealed that some officials were open to further tightening interest rates if deemed necessary to control persistent inflation. The possibility of prolonged higher interest rates has bolstered the US dollar, consequently making oil more expensive for holders of other currencies.
As the OPEC+ meeting approaches, the market remains cautious, balancing expectations of sustained output cuts against broader economic factors. The combination of potential interest rate hikes and varying demand forecasts will likely continue to influence oil prices in the coming weeks.
